Questions for Escrow

Setting up escrow is the first step in closing on your new home. Your final transaction before your new home becomes officially yours will involve settling your escrow account. At closing, you'll see line-by-line how your escrow account balances out, so you want to make sure you have any questions or concerns clarified ahead of time. Here are some questions you might have for escrow.

1. What exactly is the escrow account for?

Escrow is essentially a third party, neutral to you and the seller, who holds all documents and funds. Escrow's job is to keep all monies and paperwork safe through the closing process and ensure proper accountancy for all money.

2. What does "opening escrow" mean?

Escrow is opened at the start of closing, when you make your first deposit of money and sign the sales agreement. Your real estate agent might initiate this transaction, but the buyer or seller might also open escrow. This occurs at either the title company or the escrow agent's office.

3. When is the closing date set?

When you sign the sales agreement, you'll have the option to request the closing date to be within a certain amount of days. Usually, closing occurs at either 30, 60 or 90 days past the purchase agreement, but both parties must agree to the set term. However, until your mortgage loan company has approved your mortgage, the closing date will not be set in stone.

4. What if I need to change the closing date?

You can change your closing date, but both parties must agree. Also, you'll want to notify your loan officer to be sure this won't affect your mortgage.

5. What do closing costs include?

At closing, all costs associated with the purchase of your home are due. These costs consist of sales commissions for real estate agents, government taxes, title searches, escrow fees, loan fees, notary fees and prorated title and tax dues. Closing costs are generally about 5% of the purchase price of your new home.

6. Who can hold escrow?

A neutral third party, usually a title company, holds escrow during a transaction involving the purchase/sale of a house.

7. Is escrow a requirement?

In most cases, yes, your lender will require escrow. However, in rare cases, escrow can be avoided. If your loan-to-value ratio is low, at least below 80%, and your lender hasn't set an escrow requirement, you can ask to pay homeowners insurance and real estate taxes up front. Be aware that many lenders sell mortgage loans to other servicers, and if this happens in your case, you might be locked into escrow.

8. Are closing costs tax deductible?

Many of the costs due at closing are not tax deductible. However, expenses toward points, interest, real estate taxes, loan origination and prepayment penalty are tax deductible. Check with your tax professional or lawyer for further information.

9. What happens at closing?

At closing, your funds are officially transferred to the involved lender(s) and to the seller. In return, you officially receive the deed to your new home. You will sign remaining paperwork for both escrow and your loan, and the seller will sign the deed, mortgage documents and receive their check for any monies due. On the day of closing, the deed and mortgage documents are recorded with the local government.

10. When can I move in my new home?

You will be able to move into your new home either on the day of closing or a few days afterwards. This depends on your local government's rules and the involved lender(s). Everything must be official before you can move in, including monies transferred and recording with the local government.

While escrow is sometimes complicated, it ensures that all funds and documents are safe and disbursed accurately. If you have questions about the accountancy of funds during closing, be sure to ask your escrow agent, real estate agent or loan officer for clarification.